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TWN
Info Service on WTO and Trade Issues (Jul25/25) Geneva, 22 Jul (D. Ravi Kanth) — China on 21 July appears to have lost a rather complex patent dispute with the European Union at the World Trade Organization, after an Arbitration Panel upheld several claims raised by Brussels in that an earlier dispute panel erred in its ruling that China has complied with its WTO commitments, said people familiar with the development. The three-member Arbitration Panel – comprising Ms Penelope Ridings of New Zealand (chairperson), Ms Claudia Orozco, and Mr Mateo Diego-Fernandez Andrade – in reversing parts of the earlier panel ruling, highlighted how the panel erred in rejecting several claims by the EU concerning China’s anti-suit injunction policy. In its ruling (WT/DS611/ARB25), the Arbitration Panel recommended that “China bring into conformity with the TRIPS Agreement those measures found in this Award and in the Panel Report as modified by this Award, to be inconsistent with that Agreement.” The seemingly complex dispute concerning several aspects of the WTO’s TRIPS Agreement went through different twists and turns, starting from 18 February 2022, when the EU requested China to enter into consultations under Article 4 of the Dispute Settlement Understanding (DSU) with regard to measures that allegedly adversely affect the protection and enforcement of intellectual property rights. CONTEXT The EU had challenged several measures concerning China’s anti-suit injunction policy that it said allegedly violated Articles 1.1, 28.1, 28.2, 41.1, and 44.1 of the TRIPS Agreement; and Section 2(A)(2) of China’s Accession Protocol. Further, the EU claimed that China allegedly failed to publish certain judicial decisions regarding the measures at issue and thereby, appears to have acted in a manner inconsistent with its obligations under Article 63.1 of the TRIPS Agreement. According to the EU, China also failed to supply to the EU information about three judicial decisions related to the measures at issue that the EU had requested. As a result, China appears to have acted in a manner inconsistent with its obligations under Article 63.3 of the TRIPS Agreement. The dispute panel was established on 27 January 2023, and was subsequently composed on 28 March 2023. Australia, Brazil, Canada, Colombia, India, Indonesia, Japan, Korea, Norway, Peru, the Russian Federation, Singapore, Switzerland, Chinese Taipei, Thailand, Ukraine, the United Kingdom, the United States, and Viet Nam reserved their third party rights to the proceedings. Subsequently, on 4 July 2023, the EU and China informed the Dispute Settlement Body (DSB) that they had agreed to the Procedures for Arbitration under Article 25 of the DSU in this dispute (“Agreed Arbitration Procedures”) to give effect to the “Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU (MPIA)”. This was done with the objective of setting a framework for an Arbitrator to decide on any appeal from any final panel report issued in this dispute, if the Appellate Body is not able to hear such an appeal under Articles 16.4 and 17 of the DSU. On 21 February 2025, the Panel issued its final report to the parties and informed them that the panel report would be circulated to Members, following translation into the three official languages of the WTO, on 10 April 2025. On 22 April 2025, the EU filed a notice of recourse to Article 25 under the Agreed Arbitration Procedures, which is referred to as a “Notice of Appeal”. On 28 April 2025, China filed a “Notification of an other appeal” under Article 25 of the DSU, the Agreed Arbitration Procedures, and the Working Procedures for Appellate Review. FACTUAL BACKGROUND The factual aspects of the claims and counter-claims by both parties in the dispute involve some rather thorny issues such as if a technical standard requires the use of a patent-protected product or process (i.e. a standard essential patent (SEP)), a producer implementing that standard will need to obtain a licence for its use or risk infringing upon patent owners’ rights and the attendant legal consequences of doing so. Subsequently, as part of a SEP holder’s patent being included in a standard, the SEP holder typically commits to license the subject matter of the patent to implementers of the standard on fair, reasonable, and non- discriminatory (FRAND) terms, also known as FRAND undertaking. Also, legal disputes may arise between patent holders and implementers as to whether a particular royalty rate paid by the implementer to the patent holder is FRAND – which may result in domestic litigation in the territories in which the product or process is protected by a patent. As patents are territorial, multiple jurisdictions may be implicated in disputes between parties on the FRAND rate. Several implementers filed lawsuits in China asking Chinese courts to set the FRAND licensing rate for certain patents required to produce mobile telecommunications products and requesting anti-suit injunctions (ASIs) prohibiting the other party from taking certain legal actions in other jurisdictions. Beginning in August 2020 with a decision from the Supreme People’s Court of China (SPC), ASIs were issued in five cases before Chinese courts (and denied in one). The EU asked the Panel to rule on the five court decisions granting an ASI, as well as an alleged unwritten ASI policy in SEP litigation. The EU claimed that China’s measures were inconsistent with certain of China’s obligations under the TRIPS Agreement and that China failed to comply with the transparency obligations in the TRIPS Agreement. Further, the EU claimed that the five Chinese court decisions granting ASIs were also inconsistent with China’s obligation under its Accession Protocol to apply its laws, regulations, and other measures in a uniform, impartial, and reasonable manner. PANEL’S KEY FINDINGS With respect to the unwritten ASI policy, the Panel found that (1) it was properly within its terms of reference, and (2) the EU had proved its existence. As to the consistency of the ASI policy with the TRIPS Agreement, the Panel found that the EU had not demonstrated an inconsistency with: Article 28.1 (rights conferred to the panel holder), whether or not read in conjunction with Article 1.1, first sentence (concerning certain exclusive rights of patent holders); Article 28.2 read in conjunction with Article 1.1, first sentence (concerning patent holders’ right to licence their patents); Article 41.1 (concerning intellectual property enforcement procedures); and Article 44.1, first sentence, read in conjunction with Article 1.1, first sentence (concerning injunctions). In particular, the Panel found that the obligation in Article 1.1, first sentence stating that Members must “give effect” to the provisions of the TRIPS Agreement requires Members to implement the provisions of the TRIPS Agreement within their own domestic legal systems. The Panel concluded that “Article 1.1, first sentence contains no additional obligation relating to frustrating the object and purpose of the TRIPS Agreement or other WTO Members’ implementation of the TRIPS Agreement.” The Panel observed that with respect to the consistency of the five individual Chinese court decisions granting ASIs with the TRIPS Agreement, the EU had advanced identical claims and arguments as those raised with respect to the ASI policy. Consequently, the Panel declined to make findings on these claims concerning the five individual decisions, as any findings would be duplicative of the findings on the ASI policy. With respect to the transparency obligations under the TRIPS Agreement, the Panel, however, ruled that China had acted inconsistently under Article 63.1 of the TRIPS Agreement “by failing to publish the decision issuing an ASI in Xiaomi v. InterDigital, read together with the reconsideration decision in the same case.” The Panel found that “China was not prepared to supply information requested by the European Union and had thus acted inconsistently with Article 63.3, first sentence.” With respect to the EU’s claims that the five ASI decisions by Chinese courts were inconsistent with Section 2(A)(2) of China’s Accession Protocol, the Panel found that “the European Union had not demonstrated that Chinese courts had applied China’s laws, regulations, or other measures in a non-uniform, not impartial, or unreasonable manner.” ARBITRATION AWARD It is against this backdrop that the three-member Arbitration Panel issued its Award, containing the following findings: * The Arbitration Panel upheld “the Panel’s findings in paragraphs 7.197, 7.205, 7.206, and 8.1 of its Report that the European Union provided sufficient evidence and argumentation to demonstrate the existence of the ASI policy as a rule or norm of general and prospective application.” * The Arbitration Panel reversed “the Panel’s findings in paragraph 7.231 of its Report” and found that “the corollary of the obligation in Article 1.1, first sentence of the TRIPS Agreement to “give effect” to the provisions of that Agreement in a WTO Member’s territory is to do so without frustrating the functioning of the systems of protection and enforcement of IP rights implemented by other Members in their respective territories.” * The Arbitration Panel reversed “the Panel’s findings in paragraphs 7.240 to 7.242 and 8.2.a of its Report”. In completing the legal analysis, it found that “the European Union has demonstrated that the ASI policy is inconsistent with Article 28.1, read in conjunction with Article 1.1, first sentence, of the TRIPS Agreement.” * The Arbitration Panel reversed “the Panel’s findings in paragraphs 7.247, 7.248, 7.250-7.252 and 8.2.b of its Report.” In completing the legal analysis, it found that “the European Union has demonstrated that the ASI policy is inconsistent with Article 28.2, read in conjunction with Article 1.1, first sentence, of the TRIPS Agreement.” * The Arbitration Panel upheld, “albeit for different reasons, the Panel’s finding in paragraph 8.2.c of its Report that the European Union has not demonstrated that the ASI policy is inconsistent with Article 44.1, read in conjunction with Article 1.1, first sentence, of the TRIPS Agreement.” * The Arbitration Panel upheld “the Panel’s findings in paragraphs 7.309 and 8.2.d of its Report that the obligation in the second sentence of Article 41.1 of the TRIPS Agreement is not applicable to the ASI policy, as the ASI policy is not an enforcement procedure as specified in Part III of that Agreement.” * The Arbitration Panel upheld “the Panel’s findings in paragraphs 7.383, 7.388-7.391, 7.394.b, and 8.4.a of its Report that the decision issuing an ASI in Xiaomi v. InterDigital, read together with the reconsideration decision in the same case, is a judicial decision “of general application” within the meaning of Article 63.1 of the TRIPS Agreement.” In conclusion, the Arbitration Panel said, “Paragraph 9 of the Agreed Procedures provides that the findings of the Panel that have not been appealed in this Arbitration shall be deemed to form an integral part of this Award together with our own findings, and that the Award shall include recommendations where applicable.” Accordingly, it recommended that “China bring into conformity with the TRIPS Agreement those measures found in this Award, and in the Panel Report as modified by this Award, to be inconsistent with that Agreement.” +
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